End of Action on I.B.M. Follows Erosion of its Dominant Position

By Barnaby J. Feder
The New York Times

January 9, 1982

The Justice Department announced yesterday that it had decided to drop an antitrust suit that it started almost 13 years ago in an effort to dismember the International Business Machines Corporation.

The move was widely anticipated. Recently numerous court decisions in antitrust complaints filed by competitors have favored I.B.M. Also, decisions in private suits against the American Telephone and Telegraph Company and the Eastman Kodak Company weakened the Government's legal position in the I.B.M. case. And I.B.M.'s dominance of the computer industry has undergone general erosion since the case was filed.

The suit charged I.B.M. with monopolizing the general purpose computer market, consisting of companies that sold computer equipment, programming and services. The requested relief included breaking I.B.M. up into smaller companies.

Announcements of the ending of the suit came simultaneously at a 4 P.M. news conference in Washington called by William H. Baxter, an Assistant Attorney General who had spent six months reviewing the case, and in the Manhattan courtroom of David N. Edelstein, the Federal district judge who had presided over it. The Government said the case was ''without merit and should be dismissed.''

Computer analysts said the decision would not have a major impact on the computer industry, where I.B.M. is facing a growing challenge from Japanese computer makers and from American companies that make equipment that can operate with I.B.M.'s programs. I.B.M. and its competitors alike were said to have expected an outcome favorable to the company.

''This case didn't have a ghost of a chance,'' said Calvert D. Crary, a litigation specialist with the Wall Street firm of Bear, Stearns & Company.

The stipulation for dismissal stated that both sides would pay their own costs. The Reagan Administration reportedly has estimated that the case cost the Government as much as $13.4 million. I.B.M. has refused to disclose its cost, but it is believed to be several million dollars.

At the hearing in New York, Thomas Barr, I.B.M.'s chief lawyer, said, ''This case led to the filing of many private antitrust actions.'' Noting that I.B.M. had gained favorable rulings from 16 Federal judges in various antitrust actions, he concluded, ''I.B.M. has been completely vindicated.''

Minor cases against the company are still outstanding, but they have been idle for several years. A recent ruling by a Federal judge dismissing an antitrust complaint by the Transamerica Corporation is on appeal to the United States Court of Appeals for the Ninth Circuit, said an I.B.M. spokesman, Edward Nanus.

The Government's case was filed by Ramsay Clark, then the Attorney General, on Jan. 17, 1969, the last business day of the Johnson Administration.

Yesterday's announcement was hailed as ''wonderful news'' by John R. Opel, I.B.M.'s president and chief executive officer. But the way the stipulation was handled seemed to ruffle Judge Edelstein and some junior Government attorneys.

Although the judge had frequently encouraged the two parties to enter into settlement negotiations, he was clearly unhappy with Mr. Baxter's failure to appear for yesterday's announcement. The stipulation was signed Thursday night in Washington by Mr. Baxter and yesterday morning by Mr. Barr.

Mr. Baxter stayed in Washington for the announcement, also made yesterday, that the Government's antitrust suit against the American Telephone and Telegraph Company had been settled. In his place, he sent Abbott Lipsky, a deputy. Because of a legal technicality related to his prior involvement in the A.T.&T. case, he was unable to discuss Mr. Baxter's absence. The judge angrily chastised Mr. Lipsky.

After hearing the presentations by Mr. Lipsky and Mr. Barr, Judge Edelstein noted that Federal court rules permitted the parties to drop a case without any action by the presiding judge. He said that the stipulation did not represent a court ruling on any aspect of the case.

A junior Government attorney, who declined to let his name be used, wearily expressed dismay after the hearing. ''We could see it coming,'' he said, adding that Mr. Baxter had been extremely critical of the trial team's strategy and theories during his review of the case. ''When you go through so many Assistant Attorney Generals,'' the lawyer said, ''you are bound to get one who disagrees with what you've done.''

The view that the dismissal was long overdue won wide support among the computer industry experts who follow I.B.M. ''It's about time,'' said Thomas J. Crotty, vice president for research at the Gartner Group, a Stamford, Conn., market research firm. ''The winners were the lawyers. The losers were the stockholders and taxpayers. The institutional investment community had anticipated this and I think I.B.M.'s management had, too.''

John C. Hart, senior computer analyst at the International Data Corporation in Framingham, Mass., agreed. He cited I.B.M.'s reorganization last October to let it market its products more aggressively as a sign that I.B.M.'s management was expecting a favorable outcome.

Mr. Hart said the victory did not make the day entirely happy for I.B.M., though. The Government's settlement with A.T.&T., he said, clears the way for legislation to allow the telecommunications giant to plunge into head-to-head competition with I.B.M. in computers.

The long Justice Department suit against I.B.M. had been described as the ''antitrust division's Vietnam'' by Robert H. Bork, a Yale law professor.

Discovery and pretrial proceedings consumed more than six years, although the first half of that period lapsed with little being done. The nonjury trial itself took almost as long, running from May 19, 1975, through June 1 of last year. It had been interrupted by efforts by the Government to subpoena more evidence and by an I.B.M. motion, denied in February of 1980 by the Court of Appeals for the Second Circuit, to have Judge Edelstein removed on the ground that he had exhibited personal bias against the company.

At the time of the disqualification motion, I.B.M. estimated that the trial might drag on into 1984, a prediction that led appeals court judge William H. Mulligan to say that it would be an ''appropriately Orwellian denouement'' and to urge that settlement would be in the best interests of all parties.

Negotiations attempting to narrow the issues at stake began during the summer of 1980, but were broken off in October of that year. Sanford Litvak , then Assistant Attorney General for antitrust, was known to open -minded on the possibility of settling the suit without seeking to dismember the company. However, his review was cut short by the defeat of President Carter.

Subsequently, antitrust decisions by appellate courts favoring the American Telephone and Telegraph Company in a private antitrust suit brought by Northeastern Telephone Company and the Eastman Kodak Company in a suit brought by Berkey Photo appeared to weaken the Government's case.

When the trial ended, Mr. Barr asked Mr. Baxter to reopen negotiations to settle the case or at least narrow the issues they would submit for a final decision in briefs and closing arguments. Mr. Baxter responded by traveling to Judge Edelstein's courtroom on June 18 for a meeting in which he agreed to review the case. At that point, Judge Edelstein happily agreed to extend deadlines for post trial proceedings that would have led to submission of the case for a decision this month.

At that meeting and in a subsequent hearing further extending the deadlines, Mr. Baxter carefully avoided any suggestion that he felt the Government could revise its position. But Mr. Barr was optimistic, saying, ''He is the first person I know of in his position to take this much time to try to really understand the case.'' The review process included periodic meetings between Mr. Baxter and I.B.M. attorneys to review what he had learned about various portions of the case from Justice Department attorneys and to seek their comments.

Illustrations: photo of David N. Edelstein photo of Thomas Barr